1. 13 May 2010 prepared by SB Hwang
New Normal as we call it
13 May 2010
prepared by SB Hwang

2. The Risks have been real

3. The Risks have been real -2

4. Challenges for Risk Management
Higher Risk Premium
Larger Credit Spread
Higher Liquidity Premium
Greater Market Volatility
Risk Management plays a critical role in ensuring financial flexibility for any firm’s survival through the economic downturns and crises
Managing earnings volatility is more vital than ever before, as stability is greatly valued by investors

5. Typical Risky Behaviors
Not taking into account consideration the potential change in commodity prices when executing the FX portion of a commodity hedge – Understand the Firm’s Underlying Risks
Hedging on the back of over-confident projected sales – Hedge with Certainty
The worst case MTM of a structure is larger than the company earnings – Know your expected and worst case
Not predefining “risky levels” and not taking proactive risk actions when events occur – Set Risk Management Triggers
Portfolio of hedges consisting purely of tactical hedges – Core and Tactical Hedges
Layering the same exotic structures across the hedging portfolio – Diversify hedging products
Hedging activity on a silo basis rather than on a portfolio basis – Centralize hedging activities

6. Still hedge?
Risks have been under-priced: Markets today are pricing in larger risk premiums, making hedging risk outright more expensive
Balanced approach to manage cost and risk
– Proper application of hedging tools: earnings risk
Lowering the cost of hedging without increasing too much risk
Investors have a strong preference for stable earnings

7. Available tools for hedging in Korea
Foreign Exchange
FX Spot
FX Forwards
FX Options
Interest Rates
FRA’s
Interest rate swaps
Cross currency swaps
Interest rate options
Bond Futures
Commodity